Make Money in Growing Medical Device Stocks the Easy Way

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect medical devices companies to thrive as our population ages and needs products and procedures such as stents and pacemakers, the iShares Dow Jones US Medical Devices ETF (NYS: IHI) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. This medical devices ETF's expense ratio -- its annual fee -- is a relatively low 0.47%.

This ETF has performed reasonably well, outperforming the S&P 500 over the past five years. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.

With a not-astronomical turnover rate of 33%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.

What's in it?
Several of this ETF's components made strong contributions to its performance over the past year. MAKO Surgical (NAS: MAKO) , up 97% since the beginning of 2011, has been posting some strong numbers recently, such as revenue and earnings up more than 60% over the past year. The fact that more and more of the robotic surgical equipment and orthopedic implant maker's revenue comes from recurring sources is even more exciting. MAKO's bigger competitor, Intuitive Surgical (NAS: ISRG) gained about 69% this year, but some aren't thrilled with the company's plan to buy back $500 million of shares, as the stock doesn't seem too undervalued lately.

Defibrillator maker ZOLL Medical (NAS: ZOLL) , up about 21%, has been surging recently, on the heels of a strong, record-setting earnings report.

Other companies didn't add as much to the ETF's returns this year, but could have an effect in the years to come. Varian Medical Systems (NYS: VAR) is down about 9%, but it seems to be ramping up its inventory, suggesting that it might be expecting strong demand. Medtronic (NYS: MDT) , up 2%, has been cutting some fat and growing its profit margins, positioning itself for stronger future performance.

The big picture
Medical device makers face a bit of headwind in the form of excise taxes instituted by our recent health-care reform legislation. But demand for medical devices isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.

Learn aboutthe best dividend ETFs. And if you're looking for some great investments beyond ETFs, consider these10 stocks for your retirement portfolio.

At the time thisarticle was published Longtime Fool contributorSelena Maranjianowns shares of Intuitive Surgical, MAKO Surgical, and Medtronic, but she holds no other position in any company mentioned.Click hereto see her holdings and a short bio. The Motley Fool owns shares of Medtronic.Motley Fool newsletter serviceshave recommended buying shares of MAKO Surgical and Intuitive Surgical. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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